In case of dissolution of a firm:(A) The firm ceases to conduct busin…

In case of dissolution of a firm:

(A) The firm ceases to conduct business and has to settle its accounts.

(B) It disposes off all its assets for satisfying all the claims against it.

(D) Rules as provided in Section 48 of the Indian Partnership will be applicable.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (D) only

On dissolution, the firm stops doing business, sells its assets and pays off every claim against it. The rules for this settlement, on how losses are borne and in what order the assets are applied, are laid down in Section 48 of the Indian Partnership Act, 1932.

(A) The firm ceases to conduct business and has to settle its accounts. Correct. This is what dissolution of the firm means: the business ends and the accounts of the firm are closed.

(B) It disposes off all its assets for satisfying all the claims against it. Correct. The assets are realised so that creditors, partners’ loans and partners’ capitals can be paid out of the proceeds.

(C) Rules as provided in Section 104 of the Indian Partnership will be applicable. Incorrect. The rules for settling the accounts of a dissolved firm are in Section 48, not Section 104, so this statement names the wrong section.

(D) Rules as provided in Section 48 of the Indian Partnership will be applicable. Correct. Subject to any agreement among the partners, Section 48 governs the treatment of losses and the application of assets.

NCERT (2026-27 edition):
Settlement of Accounts – “In case of dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. For this purpose, it disposes off all its assets for satisfying all the claims against it. In this context it should be noted that, subject to agreement among the partners, the following rules as provided in Section 48 of the Partnership Act 1932 shall apply.”